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America's  Opportunity 
in  Foreign  Investments 


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Guaranty  Trust  Company 
of  New  York 


GIFT 


America's  Opportunity 
in  Foreign  Investments 


Guaranty  Trust  Company  of  New  York 


140  Broadway 


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COPYRIGHT,   1919 
GUARANTY  TRUST  COMPANY  OF  NEW  YORK 


Gil 


America's  Opportunity 
in  Foreign  Investments 


'T^HE  World  War  has  created  an  oppor- 
tunity for  America  by  hastening  the 
time  when  America  should  play  a  more 
important  part  in  world  trade  and  world 
finance.  It  is  imperative  that  the  in- 
vesting public  should  not  overlook  our 
present  opportunities.  The  necessity  of 
maintaining  our  position  in  world  trade, 
of  keeping  markets  open  for  our  products, 
emphasizes  the  need  for  financing  our 
export  trade  through  extension  of  credit 
abroad  and  purchase  of  foreign  securities. 

The  rapid  development  of  the  extensive 
new  areas  of  the  United  States  was  made 
possible  by  the  investment  of  capital 
from  other  countries.  The  continued 
investment  of  capital  in  combination 
with  our  nationalistic  policy  encouraged 
the  development  of  a  diversified  industry 
which,  during  the  period  of  our  expansion, 
found  the  market  for  its  products  within 
the  country.  Our  industries  grew  to  such 
an  extent  that  many  producers  became 
interested  in  foreign  trade  as  an  outlet  for 
their  products.  The  recent  World  War 
led  to  a  further  expansion  of  our  industrial 
capacity  and  the  establishment  of  com- 
paratively new  industries.  The  main- 
tenance of  an  outlet  for  our  products  in 
other  countries  is  essential  to  the  well- 
being  of  American  industries.  The  in- 
vestment of  capital  in  other  countries  is 
one  of  the  effective  ways  to  keep  world 
markets  open  for  American  products. 
This  involves  the  purchase  of  foreign 
securities    and    the    development    of   an 


mternational    finance    market    in    this 
country. 

The  World  War  changed  this  country 
from  a  borrowing  to  a  lending  nation  and 
set  in  operation  forces  that  will  make 
this  country  an  increasingly  important 
lender  of  capital. 

As  we  are  entering  this  period  of  devel- 
opment it  is  well  to  consider  what  other 
countries  have  done,  what  methods  they 
have  used  to  obtain  outlets  for  their 
surplus  of  capital.  As  their  wealth  in- 
creased and  they  w^ere  able  to  lend  large 
amounts,  Amsterdam,  London,  Paris, 
Brussels,  and  Berlin  became  in  their  turn 
financial  centers,  to  which  all  countries, 
but  especially  those  seeking  to  develop 
new  sources  of  wealth,  looked  for  assist- 
ance through  credit  extensions.  When 
the  fleets  of  the  Netherlands  dominated 
the  seas  and  the  possession  of  the  rich 
islands  in  the  Far  East  gave  them  pre- 
dominance in  world  trade,  Amsterdam 
was  the  financial  center  of  the  world.  It 
lost  its  predominance  to  London  after  the 
Napoleonic  Wars.  Later,  the  industrial 
development  on  the  continent  of  Europe 
led  to  the  development  of  important 
financial  centers  at  Paris,  Brussels,  and 
Berlin. 

We  must  not  rest  with  a  passive  recog- 
nition of  the  opportunities  of  America 
in  foreign  trade  and  in  the  foreign  invest- 
ment field.  We  individually  must  do  our 
utmost  to  induce  the  public  and  our 
financial  leaders  to  play  the  great  part 


[31 


which  has  been  made  possible.  It  takes 
vision  and  courage  to  \eiituro  out  into 
new  activities  v  Inch  vail  le-id  to  an  ex- 
pansion of  world  trade.  The  American 
public  should  understand  the  necessity  of 
investing  in  foreign  securities  and  the 
relation  that  it  bears  to  our  own  industrial 
and  economic  life. 

Growth  of  Great  Britain  For  a  long 
as  a  Creditor  Nation  time    before 

the  war  the 
pre-eminence  of  London  as  a  financial 
center  was  everywhere  recognized.  The 
great  trading  routes  went  through  English 
ports.  In  all  the  principal  markets  of  the 
world  payments  for  goods  were  made  by 
means  of  drafts  on  London  drawn  in 
pounds  sterling  and  traders  considered 
them  as  good  as  gold  because  of  the 
existence  in  London  of  a  wide  market 
where  they  could  be  disposed  of  for  cash. 
Through  W'Orld-wide  trade  connections 
the  English  financiers  had  developed  an 
international  point  of  view,  so  that  men 
from  every  country  going  to  London  to 
seek  capital  for  new  enterprises  felt  sure 
that  their  plans  would  get  a  sympathetic 
hearing  and  that  in  all  probability  the 
money  oi  credit  required  would  be  forth- 
coming. 

This  position  in  finance  and  trade  to 
which  London  attained  is  indicated  by 
the  variety  of  the  securities  which  are 
listed  on  the  London  Stock  Exchange. 
The  character  and  number  of  foreign  and 
colonial  securities  listed  is  as  follows : 

Colonial  and  Provincial  Gov- 
ernment Securities 185 

Indian     and     Colonial     City 

Securities 176 

Foreign  Cities 76 

Foreign  Government  Securities  210 
Railways  in   British  Colonial 

Possessions 110 

Indian  Railways 68 

American  Railroad  Securities....  56 

Foreign  Railways 276 

Total 1.157 


The  total  number  of  domestic  securities 
of  the  United  Kingdom  in  these  same 
classes  is  as  follows : 

British  Funds 72 

City  and  County 176 

Public  Bonds 34 

Railways,    Shares,    Stocks    & 

Debentures 361 

Total 643 

In  addition  to  these  there  are  many 
commercial  and  industrial  securities  which 
cannot  be  readily  classified,  it  being  mi- 
certain  to  what  extent  they  are  domestic 
and  to  what  extent  they  are  foreign, 
because  of  the  overlapping  of  the  in- 
terests which  they  represent.  But  the 
number  of  foreign  and  colonial  securities 
is  certainly  greater  than  the  number  of 
domestic  securities. 

Investment  in  foreign  enterprises  had 
begun  in  a  small  way  in  the  sixteenth  and 
seventeenth  centuries.  The  industrial 
revolution  in  tlie  middle  of  the  eighteenth 
century  created  a  great  demand  for 
capital  with  which  to  obtain  machinery, 
to  build  new  factories,  and  to  develop 
coal  mines.  The  prolonged  wars  of  this 
period  forced  the  Government  to  borrow 
heavily  from  the  English  people  and  also 
from  other  countries.  Money  rates  were 
high  and  Dutch  capitalists  took  advant- 
age of  the  situation  to  invest  very  large 
amounts  in  the  bonds  and  notes  issued 
by  the  British  Government,  in  stock  of 
the  Bank  of  England,  and  in  commercial 
or  industrial  enterprises.  Amsterdam  at 
that  time  was  the  chief  financial  center  of 
the  world.  At  the  end  of  the  century 
Great  Britain  was  still  a  borrowing 
nation. 

During  the  Napoleonic  Wars  little 
progress  was  made  by  Englishmen  in 
extending  their  foreign  enterprises.  All 
the  capital  and  credit  available  were 
needed  at  home  to  finance  the  war,  to 
provide  subsidies  amounting  to  $'219,- 
859,000  for  the  country's  Allies,  and  to 
keep  up  the  development  of  industrial 


[4] 


enterprises.  This  imposed  great  burdens 
on  the  people  for  a  time.  Everything  in 
the  land  was  taxed  to  the  limit  of  en- 
durance, but  at  the  end  of  the  war  the 
industrial  capacity  of  England  had  been 
expanded,  a  sizeable  merchant  marine 
had  been  built,  and  the  people  had  learned 
how  to  save  money.  There  began  im- 
mediately a  rapid  development  of  British 
foreign  investment.  Carried  forward  by 
the  same  spirit  which  had  enabled  them 
to  overcome  Napoleon,  the  people  of  the 
British  Isles  took  the  utmost  advantage 
of  their  expanded  productive  capacity  and 
of  their  experience  in  saving  and  investing. 
Important  loans  were  made  to  the  con- 
tinental countries  which  had  suffered  the 
most  from  the  long  years  of  war  and 
foreign  holdings  of  British  bonds  and 
stocks  were  bought  back  from  the  Dutch 
and  others. 

With  this  effort  to  get  out  of  debt  and 
to  buy  into  foreign  enterprises  there 
went  an  increase  in  trading  with  foreign 
countries  everywhere.  This  expansion  of 
world  trade,  which  became  pronounced 
about  1820,  led  to  important  invest- 
ments in  South  American  mines,  and 
loans  to  the  South  American  Govern- 
ments. American  canal  and  railway 
bonds,  as  well  as  bonds  issued  by  various 
State  Governments,  were  readily  taken 
by  English  investors.  French  and  Bel- 
gian railroad  securities  also  found  a 
market  in  London.  The  disturbances  in 
Europe  and  the  growth  of  France  and 
other  continental  countries  led  British 
investors  in  the  latter  part  of  the  first 
half  of  the  century  to  seek  more 
profitable  openings  in  America.  After  our 
Civil  War  investors  turned  their  attention 
to  the  British  Colonies,  to  South  America, 
South  Africa,  and  the  Far  East. 


Distribution  of  British 
Foreign  Investments 


The    foreign 
investments 
of   Great 
Britain,  as  estimated  by  Sir  George  Paish 


in  1913,  were  mainly  in  railways  and 
government  securities,  as  indicated  by 
the  following  table,  in  which  the  value 
of  the  pound  sterling  is  taken  as 
$4.8665. 

Railways $7,402,014,631.50 

Government  Securities 4,669,518,679.50 

Mines 1,327,527,668.50 

Finance  Land  &  Invest 1,188,336,035.50 

Municipal 718,037,475.00 

Commerce  and  Industrial 707, 258, 1 78.00 

Tramways 378,565,035.00 

Banks 354,811,648.50 

While  there  was  a  wide  distribution  of 
British  investments  throughout  the 
world,  the  largest  amounts  were  invested 
in  the  colonial  possessions,  in  the  United 
States  and  in  the  Argentine  Republic,  as 
shown  by  the  following: 

INDIA  AND  COLONIES 

Canada  and  Newfoundland $2,505,614,855.00 

Australia 1,616,223,048.00 

New  Zealand 410,411,411.00 

South  Africa 1,801,539,368.00 

West  Africa 181,544,782.50 

India  and  Ceylon 1,843,313,404.00 

Straits  Settlements 132,821,384.50 

Hongkong    15,105,616.00 

British  North  Borneo 28,323,030.00 

Other  Colonies 127,448,768.50 

Total  India  and  Colonies $8,662,345,667.50 

FOREIGN  COUNTRIES 

United  States $3,672,343,680.50 

Cuba 160,959,487.50 

Philippines 39,988,030.50 

Argentina 1,555,163,072.50 

Brazil 718,125,072.50 

Mexico 481,875,963.50 

Chile 297,552,409.50 

Uruguay 175,797,446.00 

Peru 166,302,904.50 

Miscellaneous  American 124,280,677.00 

Russia 324,240,295.50 

Egypt 218,564,248.00 

Spain 92,740,890.50 

Turkey 90,984,084.00 

Italy 60,539,260.00 

Portugal 39,593,844.00 

France 39,029,330.00 

Germany 30,970,406.00 


[5] 


Miscellaneous  European 265,613,570.00 

Japan 305,694,064.00 

China 213,556,619.50 

Miscellaneous  Foreign 339,180,450.50 

Total  Foreign $  9.413,005,756.00 

Grand  Total $18,075,441,423.50 

This  total  does  not  include  a  large 
amount  of  capital  privately  invested 
abroad  and,  were  this  added,  the  total 
British  investments  in  the  colonies  and  in 
foreign  countries  would  amount,  as  esti- 
mated, to  $19,466,000,000. 

Bases  for  The  wide  distribu- 

Wide  Distribution  tion  of  securities 
on  the  London 
Stock  Exchange  has  been  an  outgrowth 
of  Great  Britain's  extensive  trade  rela- 
tions, of  British  colonial  expansion,  of 
the  settlement  of  English-speaking  peo- 
ple in  many  countries,  and  of  the  estab- 
lishment there  of  institutions  similar 
to  those  of  England.  Through  the 
participation  of  the  British  mercantile 
marine  in  trade  with  all  countries,  Eng- 
land became  the  clearing  house  and  trans- 
shipping center  for  world  trade.  Out  of 
this  trade  the  imposing  structure  of 
British  overseas  investments  developed. 
^\herever  ships  went,  capital  followed  and 
was  invested  freely  in  the  enterprises  of 
every  nation,  thus  insuring  the  con- 
tinuance of  trade  and  its  increase  as  these 
enterprises  enlarged  their  activities. 

British  investors,  compared  with  in- 
vestors in  other  countries,  have  generally 
acted  as  pioneers  in  discovering  and 
opening  up  new  areas  for  development. 
After  the  enterprise  became  stabihzed  it 
was  possible  to  transfer  a  part  of  the 
capital  to  other  countries,  and  thus 
British  capital  advanced  continually  into 
the  more  distant  and  less  developed  parts 
of  the  world.  These  new  countries 
produced  raw  materials  which  industrial 
England  needed.  Like  all  new  countries, 
they  paid  high  rates  of  return  on  capital 


invested  in  their  enterprises.  They 
offered  opportunities  gradually  to  in- 
crease England's  control  of  their  trade 
and  industry. 

Influence  of  Foreign  Invest-  The  in- 
ments  upon  Great  Britain  vestment 

of  cap- 
ital in  other  countries,  the  extensive 
trade  relations  of  Great  Britain  with 
other  countries,  the  reliance  upon  other 
markets  for  the  growing  output  of 
British  industry,  and  the  dependence 
upon  many  countries  for  sources  of 
raw  materials,  have  been  bound  up 
very  closely  with  British  economic 
life.  The  influence  of  British  institu- 
tions in  civilized  countries  and  the 
wide-spread  settlement  of  English-speak- 
ing people  have  been  in  part  the  out- 
growth of  Great  Britain's  policy  of  econ- 
omic expansion.  It  is  impossible  to  pic- 
ture the  conditions  of  living,  the  economic 
life  of  the  British  Isles,  if  business  had 
only  been  national  in  scope  and  there  had 
been  no  effort  to  expand  their  interests 
beyond  their  own  boundaries. 

Foreign  Capital  Ever    since     its 

in  the  United  States  discovery  Amer- 
ica has  attract- 
ed the  investment  of  European  capital. 
It  was  because  of  the  opportunities 
which  they  saw  to  develop  trade — -a 
market  for  their  own  wares  and  a  source 
of  raw  materials  for  their  home  industries 
• — that  merchants  of  England,  France, 
Spain,  and  Holland  formed  companies  to 
promote  colonizations  in  this  Hemisphere. 
Their  willingness  to  invest  made  possible 
the  obtaining  of  ships  to  bring  the 
colonists  here  and  of  supplies  to  sustain 
them  until  they  had  established  them- 
selves. 

As  the  colonies  grew  in  strength 
and  importance  more  capital  was  im- 
ported for  the  development  of  tobacco 
and  cotton  plantations,  and  for  mercantile 


[61 


purposes.  The  large  merchants  were  the 
investing  class.  The  population  of  the 
American  colonies  was  swelled  by  emigra- 
tion from  the  United  Kingdom,  which 
naturally  brought  with  it  considerable 
supplies  of  capital.  Attracted  by  the 
opportunities  for  trade  and  industry, 
enterprising  men  came  to  America  from 
all  parts  of  Europe.  The  War  of  In- 
dependence for  a  time  checked  the  in- 
vestment of  British  capital  here,  and  as 
a  result,  considerable  Dutch  capital 
entered  the  country. 

In  1800  no  American  securities  were 
quoted  in  what  was  -then  regarded  as 
the  official  list  of  the  London  Stock 
Exchange,  but  in  1825  nine  issues  of 
United  States  Government  bonds  and 
a  number  of  state  and  city  bonds 
were  quoted  in  London.  In  18'^0  there 
began  a  period  of  extensive  canal  and 
highway  construction.  The  most  im- 
portant of  these  undertakings  was  the 
Erie  Canal,  which  in  IS'io  connected  the 
Atlantic  Coast  with  the  great  agri- 
cultural regions  west  of  the  Allegheny 
Mountains.  This  was  a  period  of  ex- 
tensive investment  of  foreign  capital  in 
America.  From  1830  to  1840  the  imports 
exceeded  the  exports  by  about  $200,000,- 
000,  which  may  be  taken  as  an  indication 
of  the  amount  of  foreign  capital  invested 
here.  In  1839  President  Jackson  esti- 
mated that  the  total  accumulated  invest- 
ments of  European  capital  was  about 
$200,000,000. 

A  period  of  active  railroad  building  in 
the  forties  and  fifties  brought  into  this 
country  additional  sums  of  foreign  capital. 
The  first  American  railway  loan  floated  in 
London  was  that  brought  out  by  Baring 
Brothers  in  1846,  an  issue  of  $2,000,000 
of  Baltimore  &  Ohio  Railroad  bonds. 
Considerable  Dutch  capital  was  invested 
in  American  securities  during  this  period. 
The  outbreak  of  the  Civil  War  led  many 
Europeans  to  dispose  of  their  American 
securities.     Because  of  their  interest  in 


the  production  of  cotton  in  the  Southern 
States,  British  and  Dutch  capitalists 
were  reluctant  to  invest  in  Federal 
Government  bonds.  On  the  other  hand, 
the  investors  of  Germany  took  an  active 
interest  in  United  States  bonds  because 
there  had  been  a  large  Teutonic  immigra- 
tion to  this  country  in  the  forties  and 
fifties.  In  1866  the  total  amount  of 
French  and  British  capital  in  this  country 
was  estimated  at  only  $350,000,000,  but 
by  1869  it  had  increased  to  $1,000,000,000. 

The  total  amount  of  all  foreign  capital 
invested  in  the  United  States  was  esti 
mated  by  Mr.  Wells  in  1869  to  be  $1,465,- 
000,000.  The  greatest  share  belonged  to 
British  investors,  but  substantial  amounts 
were  held  by  Holland  and  Germany.  In 
the  early  seventies  extensive  railway  con- 
struction made  possible  still  larger  invest- 
ments of  foreign  capital  in  this  country, 
rt  is  estimated  that  these  increased  from 
$243,000,000  in  1869  to  $345,000,000  in 
1876. 

In  the  eighties  and  nineties  foreign 
capital  became  interested  in  a  variety  of 
enterprises  other  than  railways,  particu- 
larly in  mining,  agriculture,  manufactur- 
ing plants,  and  public  utilities.  The 
development  of  industrial  combinations 
and  the  formation  of  large  corporations, 
made  attractive  conditions  for  foreign 
capital  seeking  to  enter  the  general  in- 
dustrial field. 

In  a  report  made  to  the  United  States 
Monetary  Commission  in  1910  Sir  George 
Paish  estimated  that  the  total  amount  of 
foreign  capital,  including  bank  loans,  in- 
vested in  the  United  States  was  approxi- 
mately six  and  one  half  billion  dollars. 
Domestic  capital,  meanwhile,  had  been 
accumulating  and  while  we  continued  to 
borrow,  our  capitalists  were  able,  on  the 
other  hand,  to  make  advances  for  the 
development  of  neighboring  countries, 
especially  Canada,  Cuba,  Mexico,  and 
some  of  the  South  American  countries. 
At  the  time  Paish  estimated  that  the 


[71 


total  investment  of  American  capital  in 
foreign  countries  amounted  to  about  one 
and  one-half  billion  dollars,  leaving 
America  a  debtor  nation  to  the  extent  of 
about  five  billion  dollars. 

The  capital  which  America  obtained 
from  abroad  was  used  chiefly  in  extending 
and  improving  the  railroads  of  the 
country.  No  one  can  survey  the  remark- 
able growth  in  the  population,  wealth, 
and  productiveness  of  the  United  States 
without  being  impressed  by  the  great 
part  which  the  railroads  have  played. 
They  made  possible  the  cultivation  of 
vast  tracts  of  agricultural  land,  the 
produce  of  which  before  the  war  was 
valued  at  more  than  eight  billion  dollars. 
They  made  possible  the  opening  up  of  our 
immense  stores  of  minerals.  In  other 
directions  the  investment  of  foreign 
capital  here  was  invaluable.  It  enabled 
the  American  peopje  to  devote  their  own 
savings  to  the  building  and  furnishing  of 
homes,  to  the  equipment  of  their  manu- 
factories, and  to  fitting  out  retail  estab- 
lishments; and  in  this  way  accelerated  the 
growth  of  population  and  wealth. 

Sir  George  Paish  estimates  that  the  in- 
crease in  the  annual  production  of  wealth 
in  the  United  States  made  possible  by  the 
investment  of  foreign  capital  here  has 
been  at  least  twenty  times  greater  than 
the  sum  paid  for  interest.  The  interest 
paid  to  foreign  capitalists  by  the  United 
States  has  been  of  less  importance  to  those 
capitalists  than  the  increase  in  the 
wealth  of  this  country  which  their  in- 
j  vestments  made  possible.  Such  increase 
I  in  our  wealth  has  meant  increased  buying 
j  power,  and  demand  for  the  products  of  the 
lending  country  so  that  the  returns  from 
the  foreign  investment  have  been  in- 
definitely larger  than  the  mere  interest 
payment.  In  the  same  way  every  invest- 
ment now  made  by  us  in  other  countries 
means  an  increase  in  their  wealth  and, 
consequently,  in  their  ability  to  purchase 
our  products.    The  war  has  reversed  the 


position  of  America  and  instead  of  other 
countries  increasing  their  sales  here 
through  increases  of  wealth  brought  about 
by  investments  in  American  enterprises, 
we  are  now  able  to  increase  our  sales 
abroad  upon  the  same  principle. 

World  Need  All  the  world  needs  cap- 
for  Capital  ital  today  as  a  result  of  the 
war.  For  four  years  and 
a  half  the  normal  life  of  mankind  has  been 
upset.  An  unparalleled  destruction  of  the 
things  which  men  need  for  food,  shelter, 
and  clothing  has  taken  place  and  the 
processes  by  which  those  goods  are  pro- 
duced and  placed  in  the  hands  of  those 
who  use  them  have  been  disorganized. 

At  the  same  time  the  nations  which 
have  been  at  war  have  been  increasing 
their  industrial  capacity  by  the  adoption 
of  more  efficient  methods  of  production. 

While  Europe  needs  foodstuffs,  raw 
materials,  and  machinery  for  the  period 
during  which  she  will  be  adjusting  her 
industries  to  a  peace  basis,  it  is  becoming 
increasingly  evident  that  this  industrial 
capacity  built  up  during  the  war  will  be 
a  very  important  factor  in  the  rehabilita- 
tion  of   devastated    areas. 

But  the  fact  remains  that  new  sources 
of  food  and  raw  materials  must  be  found 
and  they  can  be  found  only  through  the 
investment  of  capital  in  those  enormous 
areas  of  the  earth's  surface  which  are  still 
undeveloped.  A  survey  of  railway  con- 
struction during  1914  and  of  the  programs 
then  contemplated  leads  to  the  conclusion 
that  the  world  then  was  getting  ready  for 
an  era  of  world-wide  expansion  of  trade 
and  industry.  It  is  believed  now  that  the 
war  will  be  found  to  have  accelerated  that 
movement. 


Bases  upon  which  America 
may  be  a  Lender  of  Capital 


In  view  of 
the    pres- 
ent world 
demand  for  capital,  a  survey  of  the  bases 
upon    which    America    may    become    a 


[81 


lender  of  capital  makes  evident  the 
opportunity  which  our  industrial  and 
financial  leaders  have  of  directing 
capital  into  the  most  profitable  channels. 

A  century  and  a  half  ago  Amsterdam 
was  the  money  center,  partly  because  it 
was  a  large  trading  center.  England, 
following  the  Napoleonic  Wars,  became  a 
large  lending  nation  because  it  had  be- 
come a  large  industrial  country  as  well  as 
a  trading  center.  English  capital  was  put 
into  French  industrial  enterprises,  and  in 
turn  the  French  gradually  developed  an 
industrial  capacity  that  gave  them  lend- 
ing power,  and  Paris  became  a  growing 
financial  center.  More  recently  we  have 
seen  the  same  development  in  Belgium, 
making  Brussels  a  growing  financial 
center. 

Following  the  Franco-Prussian  War, 
Germany  started  an  industrial  develop- 
\y  ment  which  in  time  made  possible  the 
investment  of  German  capital  in  other 
countries,  and  Berlin  became  a  growing 
financial    center. 

The  United  States,  through  its  whole 
history,  with  a  large  undeveloped  area, 
./  has,  generally  speaking,  been  absorbing 
'  foreign  capital  as  well  as  the  growing 
accumulations  of  domestic  capital.  To- 
ward the  end  of  the  nineteenth  century 
however,  it  had  reached  such  an  industrial 
development  that  American  capital  began 
to  seek  an  outlet  in  other  countries,  and 
there  was  increasing  interest  in  world 
trade  and  the  development  of  a  merchant 
marine.  ~ 

The  United  States  is  now  in  an  un- 
usually favorable  situation  for  making 
foreign  loans.  There  are  available  for 
export  vast  supplies  of  food  stuffs  and  raw 
materials.  According  to  the  industrial 
census  for  1914,  the  industrial  plant  of  the 
United  States  had  a  total  capital  of 
$22,791,000,000,  wliile  the  value  of  output 
was  $24,246,000,000.  The  war  resulted 
in  additions  to  our  industrial  plant.  This 
is  indicated  by  the  pig  iron  production, 


which  is  about  forty -five  per  cent,  larger 
than  before  the  war;  the  establishment  of 
important  chemicals  and  dyestuffs  indus- 
tries ;  and  the  great  expansion  of  our  ship- 
building industry.  Our  diversifed  pro- 
duction and  our  natural  resources  will 
enable  us  to  supply  the  materials  which 
will  form  the  material  bases  of  loans  to 
other  countries. 

A  As  a  further  basis  for  foreign  loans,  this 
country  has  large  absorbing  power  for 
investments.  The  annual  savings,  which 
amounted  to  $6,000,000,000  before  the 
war,  reached  a  total  of  at  least  $15,000,- 
000,000  during  the  war.  The  annual  in- 
come from  the  balance  of  foreign  loans, 
which  will  be  due  this  country  as  a 
creditor  nation,  will  probably  be  largely 
absorbed  in  new  investments.  The  de- 
velopment of  a  strong  and  growing 
merchant  marine  will  further  add  to  our 
ability  to  invest  capital  in  other  countries. 
The  extraordinarily  large  gold  supply  of 
the  country,  in  combination  with  a  free 
gold  market,  will  give  bills  drawn  in 
American  dollars  a  world-wide  reputation 
as  synonomous  with  gold,  and  funds  can 
be  loaned  payable  in  gold.  This  gold 
reserve  is  a  sound  basis  for  our  credit 
structure — an  essential  requirement  in  an 
expansion  program. 


Nature  of 

Foreign  Investments 


Credit  is  the  key- 
note of  business. 
To  eliminate 
credit  from  business  would  hamper  and 
restrict  its  opportunities.  The  invest- 
ment of  capital  in  domestic  as  well  as 
foreign  enterprises  is  a  way  of  granting 
long  term  credit.  There  is  no  mystery 
about  foreign  investments.  The  in- 
vestment of  capital  in  other  countries  is 
really  only  a  means  of  financing  our 
export  trade.  The  purchase  of  bonds  of 
a  new  railroad  in  South  America  by  the 
American  investors  results  in  all  proba- 
bility in  the  purchase  in  the  American 
market  of  the  materials  and  rolling  stock 


[9] 


with  which  that  raihoad  is  to  be  built 
and  equipped.  Thus,  the  investment  of 
capital  in  other  countries  leads  to  the 
exportation,  in  the  main,  not  of  capital, 
but  of  products  of  American  labor  and 
capital.  The  proceeds  of  the  loans  will 
be  expended  for  the  purchase  of  products 
in  this  country.  By  financing  our  export 
/trade  we  are,  in  effect,  providing  business 
jfor  our  domestic  industries  and  in  that 
way  employment  for  labor. 


Benefits  from 
Foreign  Investments 


A  loan  of  capital 
means  that  the 
lending  country 
transfers  a  portion  of  its  purchasing 
power  to  the  borrowing  country,  and 
that  the  latter's  purchasing  or  consum- 
ing power  is  increased  to  a  correspond- 
ing extent.  Loans  of  capital  from  one 
country  to  another  frequently  result 
in    world-wide   expansion     of    trade    in 


operations,  and  to  exercise  our  influences 
in  establishing  stabilized  conditions  in 
other  countries  so  that  the  world's  pro- 
ducing capacity  may  be  utilized  to  the 
greatest  advantage. 

The  investment  of  capital  in  new 
countries  will  result  in  an  increase  of 
production  of  raw  materials  and  food- 
stuffs, and  will  create  new  markets  for  the 
industries  of  established  countries. 

Investment  of  capital  in  foreign  coun- 
tries, leading  to  the  development  of  their 
resources,  to  expansion  of  world  trade, 
results  in  a  better  distribution  of  all  kinds 
of  products  to  the  principal  markets  of  the 
world.  The  use  of  capital  for  the  develop- 
ment of  the  tropical  and  sub-tropical  areas 
has  enabled  people  in  temperate  regions 
to  obtain  the  products  characteristic  of 
tropical  regions.  The  opening  up  of  the 
great  wheat  belts  of  the  United  States  and 
Argentina  have  made  available  a  greater 


consequence   of  giving  su^  an  increase<l/V  absolute  quantity  of  wheat  for  the  popu- 


purchasing  power  to  the  borrowing 
country.  In  particular  such  loans  usually 
create  an  increased  demand  for  the  lend- 
ing country's  goods,  and  by  stimulating 
production  cause  the  lending  country  to 
produce  a  great  many  more  goods  than  it 
otherwise  would.  In  other  words,  the  in- 
vestment of  capital  increases  the  produc- 
ing power  of  the  lending  country  and  in- 
creases the  consuming  power  of  the 
borrowing  country. 

The  investment  of  capital  is  closely 
related  to  the  problem  of  high  prices  and 
high  cost  of  living.  Judging  from  similar 
instances  in  the  past,  it  appears  that  the 
most  feasible  means  of  reducing  pricesjs. 
by  increasing  production  in  proportion 
to  population  and  facilitating  the  inter- 
change of  goods.  In  time,  this  results 
in  an  expansion  of  world  trade,  so  that 
the  volume  of  business  may  gro^'  up  to 
the  existing  supply  of  money  and  credit. 

The  surest  way  of  increasing  production 
today  is  to  furnish  the  materials  that 
European  industries  will  need  to  resume 


lation  of  Europe  and  at  cheaper  prices. 
The  ultimate  effect  of  foreign  invest- 
ments and  the  expansion  of  world  trade 
is  to  raise  the  standard  of  living  by  making 
it  possible  for  a  larger  number  of  people 
to  obtain  those  things  which  add  to  the 
comforts  of  life. 


■ti 


Present  Need  for 
Extension  of  Credit 


As  has  been 
pointed  out, 
Europe  has  need 
of  foodstuffs,  raw  materials,  and  machin- 
ery to  place  its  industrial  life  upon  a 
normal  basis  and  to  give  employment  to 
its  people,  which  is  the  surest  way  of 
checking  the  spirit  of  social  unrest.  But 
Europe's  buying  power  as  measured  in 
pre-war  terms  is  weak  because  she  does 
not  have  that  surplus  of  products  for  sale 
abroad  which  normally  would  be  used  to 
pay  for  imports.  For  the  time  being 
Europe  must  have  credit  extended  to  her 
in  order  that  she  may  be  able  to  buy, 
otherwise  the  period  of  readjustment  will 
be  prolonged  and  the  stabilizing  of  her 


[10] 


industrial  life  will  be  delayed.  Such  a 
situation  might  possibly  have  social  and 
political  consequences  which  would 
gravely  affect,  not  only  her  position,  but 
that  of  other  countries  also.  The  failure 
to  extend  credit  will  mean  that  instead  of 
our  export  trade  expanding  and  growing 
larger,  it  must  of  necessity  grow  smaller 
until  the  time  has  come  when  Europe  can 
sell  us  commodities  in  exchange  for  those 
which  we  send  to  her. 

The  tendency  toward  a  decrease  in  our 
export  trade  was  quite  evident  in  the 
figures  for  July,  which  w^ere  $348,000,000 
lower  than  those  for  June.  The  exchange 
situation  was  generally  recognized  as  a 
very  important  factor  affecting  this,  and  it 
has  become  more  unfavorable  since  that 
time.  Since  the  Armistice  the  United 
States  Government  has  made  advances  to 
Allied  and  associated  Governments  total- 
ling approximately  $2,250,000,000.  Ob- 
viously our  Government  is  reaching  the 
limits  of  its  power  of  making  advances 
and  it  becomes  imperative  that  the 
general  investing  public  make  the  needed 
response  to  finance  our  trade,  which  has 
heretofore  been  done  by  the  Government. 
Unless  credit  is  extended,  the  buying 
power  of  Europe  will  become  less  in  the 
immediate  future  and  this  country  will  be 
confronted  with,  not  an  expansion  of  ex- 
ports, but  a  continual  decrease  of  exports. 
Only  an  extension  of  long  terra  credit  can 
keep  these  markets  open  for  our  products 
and  improve  the  buying  power  of  many 
foreign  countries. 

Need  for  Investment  of  America  is 
Enterprise  Capital  interested,  na- 

in  New  Countries  turally,  in  the 

short  term 
swing  of  world  events,  not  only  because  of 
their  present  significance,  but  because  of 
their  power  to  influence  the  future  in 
laying  the  bases  for  the  development  of 
trade  and  industry.  From  the  long  term 
viewpoint,   America  should  play   an  in- 


creasing part  in  world  trade.  American 
investors  must  be  willing  to  buy  foreign 
securities,  to  lend  their  funds  for  the 
development  of  other  countries,  particu- 
larly the  development  of  new  and  unde- 
veloped areas.  This  will  create  a  growing 
and  expanding  market  for  American  pro- 
ducts. In  addition,  the  return  on  such 
capital  is  higher  because  new  countries 
have  relatively  high  rates  of  interest. 

But  if  we  are  to  play  the  part  of  a  great 
lending  nation  we  must  be  willing,  not 
only  to  lend  our  capital,  but  to  lend  what 
might  rightly  be  termed  enterprise 
capital;  to  send  into  these  countries 
American  men  to  manage  industries 
established  by  American  capital.  These 
men  will  be  able  to  carry  American 
methods  into  the  management  of  their 
enterprises.  There  is  no  greater  testimony 
for  example,  to  the  effectiveness  of  the 
combination  of  capital  and  American 
management  than  in  the  copper  and  iron 
developments  of  Chile. 

In  this  way  the  American  who  has 
funds  to  lend  assumes  the  risks  of  an 
uncertain  return,  assumes  the  obligations 
of  management,  and  receives  larger  re- 
wards. Our  young  men  must  become 
imbued  with  the  idea  of  going  out  and 
settling  in  other  countries  and  playing 
their  part  in  developing  those  countries 
and  in  forming  an  outlet  for  American 
enterprise  and  capital. 

Liberal  Credits  it    jg    imper- 

Europe's  Cardinal  Need    ative       that 

America  to- 
day conserve  her  resources;  that  she 
follow  a  policy  of  the  strictest  economy, 
individual  and  public,  in  order  that  the 
absorbing  power  for  investments  may  be 
materially  increased.  The  necessity  of 
financing  our  export  trade  through  the 
extension  of  short  and  long  term  credit 
must  be  brought  to  the  attention  of  the 
investing  pubhc  of  this  country.  In  the 
first  place,  the  appeal  must  be  made  to 


[11] 


those  people  who  are  directly  benefited 
by  the  maintenance  and  development  of 
our  export  trade.  They  must  be  made  to 
see  that  if  they  expect  to  find  a  market 
for  their  products,  means  of  financing 
must  be  available.  But  the  appeal  must  be 
made  to  a  wider  circle  of  individuals — the 
general  investing  public.  The  beneficial 
efforts  of  a  period  of  prosperity,  of  a  period 
of  expansion  of  trade  and  industry,  are 
widespread.  They  affect  all  elements  of 
our  population.  It  is  therefore  the  busi- 
ness of  every  investor  to  do  everything 
in  his  power  to  finance  our  export  trade 
and  to  expand  the  growing  foreign  market 
for  American  products,  through  the  pur- 
chase of  foreign  securities. 

Credit  is  the  life  blood  of  industry.  If 
we  have  faith  in  an  individual's  ability  to 
work  out  his  situation  we  are  willing  to 
give  him  the  needed  aid  in  the  extension 
of  credit.  That  is  the  way  our  domestic 
trade  is  financed.  These  principles  are 
applied  in  ordinary  business,  in  w  liich  the 
cotton  planter,  the  manufacturer,  the 
miner,  and  others  obtain  the  means  of 
financing  their  business.  These  principles 
need  to  be  applied  today  to  other  nations 
and  to  the  world  at  large.  It  is  to  be 
expected,  of  course,  that  American  in- 
vestors in  buying  foreign  securities  will 
exercise  the  same  caution  and  discrimina- 
tion that  characterize  their  purchases  of 
domestic  securities.  If  we  believe  in  the 
inherent  economic  strength  of  a  country, 
we  should  be  willing  today  to  do  our  part 
toward  its  rehabilitation  or  development 
by  extending  credit.  We  believed  in  the 
justice  of  the  cause  of  our  Allies  and  in 
their  ability  to  w  in  finally.  We  extended 
credit  to  them  and  saw  our  sales  to  them 
of  commodities  of  every  kind  increase 
beyond  anything  before  known.  In  the 
same  way  extensions  of  credit  now  and  in 
the  future  through  foreign  investments 


will  keep  those  markets  open  for  our 
manufacturers  and  traders  and  business 
will  tend  to  grow  instead  of  decrease 
with  a  gradual  return  to  normal  con- 
ditions. If  we  have  faith  in  the  future 
for  our  industry  and  trade,  and  in  our 
economic  position,  we  must  b3  willing  to 
play  the  constructive  part,  to  invest 
capita],  and  to  lay  the  bases  upon  which 
may  be  built  a  growing  export  trade  com- 
mensurate with  our  position  as  a  great 
nation.  To  do  so  is  good  business,  not 
only  for  the  country  as  a  whole  but  also 
directly  or  indirectly,  for  the  individual — 
because  collective  prosperity  usually 
means  individual  prosperity. 


Responsibility  of 
the  Borrowers 


Other  nations, 
however,  must 
fully  realize  their 
obligations  and  responsibilities  in  seeking 
American  capital.  They  must  expect  our 
people,  quite  naturally,  to  discriminate  in 
favor  of  those  countries  with  stable  polit- 
ical conditions  and  governments  which 
are  imposing  adequate  taxation  in  order 
to  meet  their  financial  obligations  on 
sound  bases.  The  whole  structure  of  our 
foreign  investments,  in  fact,  wuU  rest 
largely  upon  these  factors,  and  the  extent 
to  which  we  grant  credit  to  the  peoples  of 
Europe  and  other  countries,  whether  in 
the  form  of  loans  or  investments,  will  be 
contingent  almost  entirely  upon  them. 

Political  stabiHty,  social  order,  respect 
for  the  rights  of  property,  and  a  sound 
financial  program  should,  of  course, 
underlie  any  request  for  credit.  That 
these  will  follow  the  convalescence  of  a 
world  now  emerging  from  five  years  of 
war  may  reasonably  be  expected  of 
the  nations  as  a  whole.  Duty,  oppor- 
tunity and  work  must  then  guide  the  way 
to  service. 


[12] 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 
BERKELEY 

Return  to  desk  from  which  borrowed. 
This  book  is  DUE  on  the  last  date  stamped  below. 


JAN  $ 


T949 
RECOLD   Jll 


572  AW^y 


LD  21-100to-9,'47(A5702s16)476 


W  Ub54 


U 


y 


